Key Takeaways

  • Revenue growth is slowing at Whole Foods due to a slow-down in same-store sales. This slow-down highlights a structural weakness the firm has in a maturing segment of the grocery industry.
  • Profitability is likely to fall in the future. We believe the firm will be able to generate profits higher than its larger competitors, but lower than its recent peak.
  • Investment levels are very high and will need to remain high for some time. Whole Foods is at a disadvantage due to its smaller network of stores, to improve its same-store sales longer term, it needs to site stores that are more convenient to more customers.
  • Medium-term cash flow growth rates will likely remain high. This assumption is contingent upon a gradual decrease in investment levels (from “very high” to “high”).
  • IOI Fair Value Range for Whole Foods implies downside risk for owners or an opportunity for bearish investors.

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